Dollar shortages and central bank swap lines

Fernando Eguren-Martin ()
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Fernando Eguren-Martin: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Authors registered in the RePEc Author Service: Fernando Eguren Martin

No 879, Bank of England working papers from Bank of England

Abstract: We explore the role of ‘dollar shortage’ shocks and central bank swap lines in a two-country New Keynesian model with financial frictions. Domestic banks issue both domestic and foreign currency debt and lend in domestic currency. Foreign currency-specific funding shocks, which are amplified via their effect on the exchange rate given balance sheet mismatches, lead to uncovered interest rate parity deviations, a contraction in lending and have a significant negative effect on macroeconomic variables. We show that central bank swap lines can attenuate these dynamics provided they are large enough.

Keywords: Central bank swap lines; liquidity facilities; dollar shortages; uncovered interest rate parity condition; financial frictions (search for similar items in EconPapers)
JEL-codes: E32 E44 E58 F33 F41 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020-07-10
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0879

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